Global equity funds see second weekly outflow on caution over economic outlook

Global investors were net sellers of equity funds for a second successive week through Sept. 11, driven by concerns over the health of the US economy and caution about the political climate in the run-up to the US Presidential debate.

However, optimism over central banks’ rate cuts trimmed down the outflows.

According to LSEG data, investors withdrew USD 3.46 billion from global equity funds during the week, a reduction in sales volume compared to the USD 4.96 billion in net sales the prior week.

US data signaling economic slowdown sparked last week’s global equity sell-off, but world stocks rebounded over 2% this week following an ECB rate cut and prospects of a 50-basis point US rate cut in the next week’s meeting.

Investors sold USD 7.82 billion worth of US equity funds last week following USD 11.54 billion in net sales the prior week. Conversely, Asian and European funds drew inflows of USD 2.91 billion and USD 793 million, respectively.

“We prefer global equities to fixed income once again, as rate cuts are starting around the globe and joblessness is still low,” Ajay Rajadhyaksha, chairman for global research at Barclays, said in a note.

“But investors may elect to sit on the sidelines for now, awaiting clarity that will emerge from the US presidential election.”

The technology sector experienced a substantial USD 1.97 billion outflow in the week to Sep. 11, the largest since November 2023. Meanwhile, investors withdrew USD 1.53 billion from financials and allocated USD 1.12 billion and USD 878 million to consumer staples and utilities, respectively.

During the week, investors added USD 21.67 billion and USD 4.14 billion, respectively, to safer money market and government bond funds.

Global bond funds attracted USD 11.81 billion in their 38th consecutive week of inflows, with investors notably putting USD 3.12 billion into short-term funds and USD 1.5 billion into high-yield funds.

Gold and other precious metal funds retained their appeal for the fifth consecutive week with USD 472 million in net purchases, while energy funds saw an increase of USD 150 million in inflows.

Data covering 29,592 emerging market funds showed equity funds lost USD 1.05 billion in outflows for the 14th week in a row. In contrast, bond funds gained USD 567 million, marking a 12th straight week of inflow.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru;
Editing by Tomasz Janowski)

Gold hits all-time high as Fed rate-cut hopes bolster appeal

Gold prices rose more than 1% to hit a record high on Thursday, helped by expectations of an interest rate cut by the Federal Reserve next week after US data signaled a slowing of the economy.

Spot gold was up 1.7% at USD 2,554.05 per ounce, as of 02:10 p.m. ET (1810 GMT). US gold futures settled 1.5% higher at USD 2,580.60.

The US Labor Department said initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 230,000.

US producer prices increased slightly more than expected in August amid higher costs for services, but the trend remained consistent with subsiding inflation.

“We are headed towards a lower interest rate environment so gold is becoming a lot more attractive … I think we could potentially have a lot more frequent cuts as opposed to a bigger magnitude,” said Alex Ebkarian, chief operating officer at Allegiance Gold.

Markets are currently pricing in a 73% chance of a 25-basis-point US rate cut at the Fed’s Sept. 17-18 meeting, and a 27% chance of a 50-bps cut, the CME FedWatch tool showed.

Zero-yield bullion tends to be a preferred investment amid lower interest rates.

“The labor market is continuing to falter and if the labor market deteriorates, the journey that they’ll embark on in cutting rates is going to go for an extended period of time,” said Phillip Streible, chief market strategist at Blue Line Futures.

Elsewhere, palladium gained 4.1% to USD 1,050 per ounce, hitting its highest in over two months.

Russian President Vladimir Putin said on Wednesday that Moscow should consider limiting exports of uranium, titanium, and nickel in retaliation against the West.

“Palladium is the market that is up for a short-covering rally. Putin did not mention palladium. But since the metal is a by-product of Russian nickel production, such export curbs could drive down production of both metals and deepen the current deficit in the palladium market,” said WisdomTree commodity strategist Nitesh Shah.

Spot silver up 3.7% at USD 29.76 and platinum gained 3% to USD 979.62, hitting its highest level in near two months.

(Reporting by Anushree Mukherjee in Bengaluru and Polina Devitt in London; Editing by Christina Fincher, Krishna Chandra Eluri, and Alan Barona)

Oil rises 2% as storm batters US Gulf of Mexico production

NEW YORK – Oil prices rose over 2% on Thursday as producers assessed the impact on output in the US Gulf of Mexico after Hurricane Francine tore through offshore oil-producing areas before being downgraded to a tropical storm.

Over 730,000 barrels per day, or nearly 42%, of Gulf of Mexico oil output was shut in due to storm Francine on Thursday, the US Bureau of Safety and Environmental Enforcement said.

US West Texas Intermediate crude futures rose by USD 1.66, or 2.5%, to settle at USD 68.97 per barrel. Brent crude futures rose by USD 1.36, or 1.9%, to USD 71.97 per barrel.

Both contracts had gained more than 2% on Wednesday as companies evacuated offshore platforms due to Francine. The disruptions are estimated to reduce output this month from the Gulf of Mexico by around 50,000 barrels per day, UBS analysts said.

Some analysts, however, cautioned that Francine’s impact could be short-lived, as it lost intensity quickly after making landfall in Louisiana on Wednesday evening. That could turn the oil market’s attention back to a lack of global demand, Alex Hodes, an analyst at StoneX, told clients in a note.

Oil and fuel export ports from south to central Texas had already reopened on Thursday and refineries were also ramping up.

Concerns about weak global oil demand, particularly from top importer China, have weighed heavily on prices in recent months. Brent crude futures settled near a three-year low on Tuesday after the OPEC+ producer group slashed its annual demand growth forecasts for the second month in a row.

The International Energy Agency on Thursday lowered its 2024 demand growth forecasts by more than 7% to 900,000 bpd, citing weak demand in China and feeble growth in other regions.

The US, the top consumer of oil, is also flashing signs of weak demand. Oil stockpiles rose in the country last week as crude imports grew, exports dipped and fuel demand slumped, data from the Energy Information Administration (EIA) showed on Wednesday.

US gasoline prices are trending towards a three-year low because of weak demand and abundant supplies, analysts said. US gasoline consumption represents nearly 9% of global oil demand.

Market participants are also closely following a weeks-long crisis over control of Libya’s central bank, which has led to oil output and export reductions from the country. A preliminary agreement was reached last week to resolve the crisis, but the situation remains fluid.

Analysts at FGE said crude output in Libya is recovering and export loadings are resuming, but warned that a full recovery remains uncertain.

(Reporting by Shariq Khan and Arunima Kumar; Additional reporting by Ahmad Ghaddar, Katya Golubkova, Emily Chow, Jeslyn Lerh; Editing by David Goodman, Jason Neely, Paul Simao, and Cynthia Osterman)

Gold bulls set sights on previously dismissed record USD 3,000/oz milestone

Gold market bulls are locking in bullion prices surging to fresh records, with a milestone of USD 3,000 per ounce coming into focus, fired up by monetary easing by major central banks and a tight US presidential election race.

Spot gold reached a historic high of USD 2,572.81 an ounce on Friday and is on track for its strongest annual performance since 2020, with a rise of over 24% driven by safe-haven demand, due to geopolitical and economic uncertainty, and robust central bank buying.

Gold could reach USD 3,000 per ounce by mid-2025 and USD 2,600 by the end of 2024 driven by US interest rate cuts, strong demand from exchange traded funds and over-the-counter physical demand, said Aakash Doshi, head of commodities, North America at Citi Research.

Last week, the World Gold Council said global physically backed gold exchange traded funds saw a fourth consecutive month of inflows in August.

With the next Federal Reserve meeting approaching on September 18, markets are gripped by the likelihood of the first US interest rate cut since 2020. Low rates tend to be supportive of gold, which bears no interest.

Investors are currently pricing in a 55% chance of a 25-basis-point US rate cut and a 45% chance of a 50-bps cut, the CME FedWatch tool showed.

If incoming data points to growth risks and weakness in the labor market, it will raise the chance of a 50 bp rate cut in either November or December, which would increase the tailwind for gold and pull forward the timing for the attainment of USD 3,000, said Peter A. Grant, vice president and senior metals strategist at Zaner Metals.

Interest rate cuts from major central banks are well underway, with the European Central Bank on Thursday delivering its second quarter-point cut of the year.

“We’re also evaluating other factors stirring up demand from the Western investor, including the upcoming US election arguably adding to the uncertainty and gold serving as a hedge against immediate event risks,” said Joseph Cavatoni, market strategist at World Gold Council.

The upcoming Nov. 5 presidential election could boost gold prices as potential market volatility may drive investors towards safe-haven gold.

Attaining the USD 3,000 per ounce target is possible, said Daniel Pavilonis, senior market strategist at RJO Futures, adding that the scenario could be driven by political unrest following elections.

Investment banks and analysts have turned increasingly bullish on gold, with Wall Street bank Goldman Sachs showing the highest confidence in near-term upside in gold, which remains its preferred hedge against geopolitical and financial risks.

Australia’s Macquarie raised its gold price forecasts this week and is now looking for a quarter average cyclical peak in the first quarter next year of USD 2,600 per ounce, with potential for a spike towards USD 3,000.

“While the backdrop of challenged developed market fiscal outlooks remains structurally positive for gold, a lot is arguably already in the price, with the potential for cyclical headwinds to emerge later next year,” analysts at Macquarie said.

(Reporting by Anushree Mukherjee, Anjana Anil and Swati Verma in Bengaluru
Editing by Christina Fincher)

US yields steady with gradual start to rate cuts in view

NEW YORK – US Treasury yields rose on Thursday as economic data did not upend expectations the Federal Reserve will begin a gradual decrease in interest rates next week, and as the European Central Bank cut rates but gave little clarity on future easing.

US producer prices increased slightly more than expected in August, but the trend remained consistent with subsiding inflation. On the labor market side, meanwhile, data on Thursday showed the number of Americans filing new applications for unemployment benefits increased marginally last week.

The data did not significantly alter investor expectations of a 25-basis-point interest rate cut by the US central bank at its Sept. 17 to 18 rate-setting meeting. Bets for a bigger, half-percentage point cut were curbed on Wednesday when consumer price data showed inflation remains somewhat sticky.

“The initial (jobless) claims were benign as far as any relationship to movement in bond prices,” said Lou Brien, market strategist at DRW Trading in Chicago.

Traders in rates futures were assigning a 29% chance to a 50-bps cut next week, more than on Wednesday, with the consensus remaining largely on a 25-bps reduction adjustment, CME Group data showed.

“The market has been expecting the Fed to move next week and they’re likely to move,” said Erik Aarts, senior fixed income strategist at Touchstone Investments. “Some in the marketplace thought there could be a larger cut next week; we don’t think so, we’re firmly in the camp of getting 25 basis points as the start of rate cuts,” he said.

US bond giant PIMCO said in a note on Thursday it expects the Fed to cut rates by 25 basis points three times this year, as resilience in the US economy points to a gradual descent to a less restrictive policy.

Meanwhile, on Thursday the European Central Bank cut its deposit rate by 25 bps to 3.50%, as expected, following a similar cut in June. But bets on ECB rate cuts for the rest of the year were pared back, leading to higher eurozone government bond yields.

This likely helped push US yields higher, said Lawrence Gillum, chief fixed income strategist at LPL Financial.

“We also think there’s been a lot of rate cuts priced into the US markets already, and we think the Fed is going cut rates only 25 basis points next week … so rates are probably going to trend higher into the Fed meeting,” he added.

WEAK AUCTION

On the supply side, a USD 22 billion 30-year Treasury bond auction on Thursday met lukewarm demand. The bonds were sold at a high yield of 4.015%, about one and a half basis points above the market at the bidding deadline.

This came after US budget deficit data released by the Treasury Department showed the fiscal 2024 deficit through August was up 24% from a USD 1.525 trillion deficit in the comparable year-ago period, with annual interest costs on the public debt topping USD 1 trillion for the first time.

“The 30-year was a weak auction but it’s possible we start to see a string of weak auctions given the amount of Treasury debt that has to come to market to fill these budget deficits,” said Gillum.

Benchmark 10-year Treasury yields added nearly three basis points to 3.681%. Two-year yields, which tend to more closely reflect expectations of changes in monetary policy, were last at 3.649%, a touch higher than on Wednesday.

On the long end, 30-year yields rose by three basis points to about 4%.

The curve comparing 10- and two-year yields, closely watched by investors for its signals on the economic outlook, steepened to three basis points from less than one on Wednesday.

(Reporting by Davide Barbuscia; Editing by Emelia Sithole-Matarise and Diane Craft)

Weekly rebound in reach, China data deluge looms

Asian stocks are poised to end the week on a strong footing on Friday, spurred on by another solid rise on Wall Street the day before that puts some key benchmark indexes across the continent on track to register modest weekly gains.

The European Central Bank cut interest rates on Thursday and the Fed is set to begin a pretty substantial easing cycle next week. Although the former was no surprise and traders have been expecting the latter for a while, they are conducive to a ‘risk on’ environment that should boost sentiment in Asia on Friday.

The S&P 500 and Nasdaq both rose for a fourth consecutive day on Thursday. The S&P 500 came within 1% of its record high struck on July 15 and the Nasdaq, up 5.3% so far this week, is on track for its biggest weekly rise this year.

In other good news, Japan’s Nikkei on Thursday snapped a seven-day losing streak in style, jumping 3.4%. Notably, it did so without the help of a weaker yen – the yen made a new high for the year against the dollar and although it recoiled, it still ended Thursday slightly stronger.

But if yen strength is to persist, the outlook for Japanese stocks is murky. Indeed, the outlook for global asset prices may also be murky if the yen carry trade unwind has further to run, as SocGen strategists expect.

This creates “clear market risks as market leverage in this cycle comes mainly from the Japanese currency,” they said on Thursday, adding that they are increasing their yen exposure and reducing their Japanese equities exposure.

If markets across Asia are set to end the week on a high, the exception once again could be China. Shanghai stocks on Thursday posted their lowest close since January 2019.

Shanghai’s blue chip index will likely end the week in the red, its fourth weekly fall in a row and the 14th decline out of the last 17 weeks. It’s been a miserable run that has seen the index lose 15%, but surely it has to turn at some point. Right?

A batch of top-tier economic data from China over the weekend could be the trigger although that may require some rare upside surprises.

Beijing releases house price, investment, industrial production and retail sales figures for August on Saturday, and economists polled by Reuters generally expect the numbers to come in weaker than July’s readings.

The calendar in Asia on Friday, meanwhile, sees the release of Indian wholesale price inflation, a speech by Bank of Thailand governor Sethaput Suthiwartnarueput and Bank of Japan board member Naoki Tamura.

Here are key developments that could provide more direction to Asian markets on Friday:

– India WPI inflation (August)

– South Korea import & export prices (August)

– New Zealand manufacturing PMI (August)

(Reporting by Jamie McGeever; Editing by Deepa Babington)

US yields climb as inflation data dashes hopes for large rate cut

NEW YORK – US Treasury yields rose on Wednesday after the release of August data showing US consumer prices rose marginally while underlying inflation remained sticky, curbing expectations for a large interest rate cut by the Federal Reserve next week.

Excluding the volatile food and energy components, the Consumer Price Index climbed 0.3% in August after rising 0.2% in July. In the 12 months through August, the so-called core CPI increased 3.2%. That followed a 3.2% gain in July.

Treasury yields, which move inversely to prices, surged after the release, as traders pared back bets on a 50 basis point cut by the US central bank at its Sept. 17-18 rate-setting meeting.

“Core (CPI) at 0.3% is what’s shaken up the market,” said Tony Farren, managing director of rates sales and trading at Mischler Financial Group.

“This dampens the chances of a 50 basis point cut in September; I think that’s definitely off the table now, and it hurts the chances for any 50 bps cut for the rest of the year, although we still have a lot of data after,” he said.

Yields subsequently declined, likely because of some dip-buying activity, even if they ultimately inched higher. “There are people who are still not long and always try to take opportunities when you have the market selling off,” said John Madziyire, head of US Treasuries and TIPS at Vanguard.

Late on Wednesday, traders largely bet on 25 basis point cut next week, while a bigger half-point cut had a 13% probability, down from about 34% on Tuesday, CME Group data showed.

The uptick in yields followed price gains overnight that had led 10-year yields to their lowest since June 2023 and two-year yields to their lowest since September 2022.

Some analysts said that was partly a reaction to the US presidential debate on Tuesday evening. Vice President Kamala Harris, the Democratic candidate, was widely seen as dominating the debate with Republican former President Donald Trump, prompting betting markets to give her better odds in the November presidential election.

“Yields drifted slightly lower during the overnight session with a theme of stability emerging in the wake of the Harris/Trump debate,” BMO Capital Markets rates strategists wrote in a note. “From the perspective of the US rates market, nothing emerged from the debate that triggered reflationary jitters or concerns about Treasury supply indigestion.”

Harris’ late entry in the presidential race after President Joe Biden’s withdrawal in July prompted a reversal of bond trades that were put in place on expectations of a second Trump presidency. Those expectations had led to higher US Treasury yields on anticipation of higher inflation and wider budget deficits under Trump.

On the supply side, the US Treasury Department sold USD 39 billion in 10-year notes, which received solid demand.

The notes were sold at a high yield of 3.648%, about 1.5 basis points below the expected rate at the time of the bid deadline – a sign that investors were willing to pay up to secure the paper. The sale will be followed by a USD 22 billion 30-year bond auction on Thursday.

Benchmark 10-year yields were last at 3.655%, up 1 basis point from Tuesday. Two-year yields, more reflective of expected changes in monetary policy, were at 3.645%, up about 3 basis points from Tuesday.

The 2/10 yield curve, which plots 10-year yields over two-year yields and is closely watched by investors as it signals an upcoming recession when inverted, remained in positive territory on Wednesday, although by less than 1 basis point. During the day, 10-year yields slipped below two-year yields for the first time since Sept. 6.

(Reporting by Davide Barbuscia; Editing by Andrew Heavens and Jonathan Oatis)

US crude oil climbs more than USD 2 on fears of Hurricane Francine

HOUSTON – Oil prices climbed more than 2% on Wednesday, driven by fears of lengthy production shutdowns in the US offshore oil patch, which Hurricane Francine was barreling through on the way to landfall in Louisiana.

Brent crude futures settled at USD 70.61 a barrel, up USD 1.42, or 2.05%, on Wednesday. US crude futures finished up USD 1.56 a barrel, or 2.37%, at USD 67.31.

Oil prices shook off an increase in crude inventories reported by the US Energy Information Administration on Wednesday morning.

Crude inventories rose by 833,000 barrels to 419.1 million barrels in the week ending Sept. 6, the EIA said, compared with analysts’ expectations in a Reuters poll for a 987,000-barrel rise.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.7 million barrels in the week.

“A rather unexciting minor build to crude inventories has been overshadowed by yet one more draw at Cushing,” said Matt Smith, lead oil analyst for Kpler. “EIA data show Cushing inventories now drawing nine of the last 10 weeks, down to the lowest level since early November last year.”

Both oil benchmarks tanked on Tuesday, with Brent falling below USD 70 to its lowest price since December 2021 and US crude dropping to its lowest since May 2023, after OPEC revised down its 2024 oil demand growth forecast for a second time.

Concern about Hurricane Francine disrupting output in the United States, the world’s biggest producer, also lent support, other analysts said.

“Next week I suspect the statistics will be impacted by Hurricane Francine interrupting tanker flow through the Gulf of Mexico,” said Andrew Lipow, president of Lipow Oil Associates.

The US Bureau of Safety and Environmental Enforcement said 39% of crude oil production in the Gulf of Mexico was shut by Wednesday as companies evacuated crews out of Francine’s path.

The bureau also said 49% of natural gas production from the Gulf was shut by the storm.

The US-regulated northern Gulf of Mexico accounts for 15% of total US crude oil production and 2% of dry natural gas production, according to EIA.

(Additional reporting by Alex Lawler, Robert Harvey, and Yuka Obayashi; Editing by Louise Heavens, Paul Simao, Chris Reese, David Gregorio, and Jonathan Oatis)

Gold falls as CPI data dampens talk of oversized US rate cut

Gold prices fell on Wednesday as the dollar and Treasury yields firmed after US inflation data prompted investors to scale back expectations of an oversized rate cut from the Federal Reserve next week.

Spot gold was down 0.1% at USD 2,513.19 per ounce at 1:46 p.m. ET (1746 GMT).

US gold futures settled mostly unchanged at USD 2,542.40.

US consumer prices rose only slightly in August, but underlying inflation showed some stickiness, which could dissuade the Fed from delivering a half-point interest rate cut next week.

“Inflation is still here. The consumer is still feeling it. If they do a half, it signals they’re throwing in the towel here… a quarter point is something that they’re almost forced into doing here at this point,” said Bob Haberkorn, senior market strategist at RJO Futures.

Markets are currently pricing in an 87% chance of a 25-basis-point US rate cut, compared to 71% before the data, the CME FedWatch tool showed.

The Fed will lower interest rates by 25 basis points at each of the three remaining policy meetings in 2024, according to a majority of economists in a Reuters poll that found only nine out of 101 expected a half-percentage-point cut next week.

“The uptick in core CPI has more or less cemented at 25 bps cut next week … A new all-time high (for gold prices) may have to wait just a little longer,” said Tai Wong, a New York-based independent metals trader.

Markets will now look towards the US producer price index reading and initial jobless claims due on Thursday.

Among other metals, spot silver was up 0.8% at USD 28.60 per ounce, platinum rose 1.9% to USD 955.73 and palladium firmed 4.8% to USD 1,011.09.

Russian President Vladimir Putin said that Moscow should consider limiting exports of uranium, titanium and nickel in retaliation against the West.

Palladium prices are rising due to changes in export regulations, particularly in Russia, said Daniel Pavilonis, senior market strategist at RJO Futures.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Mark Potter, Alan Barona and Janane Venkatraman)

Strong open eyed after US inflation see-saw

The see-saw nature of US market reactions to the latest US inflation figures on Wednesday highlighted investors’ general skittishness right now, as they try to predict whether the Fed will cut interest rates by 25 or 50 basis points next week.

At the market close, the S&P 500 and Nasdaq had posted healthy gains and chalked up their third daily rise, the VIX ‘fear index’ had fallen for a third day, and Treasury yields bounced back from new cycle lows to end higher across the curve.

There was something for everyone in the CPI data, which is perhaps why the bond market swung so much. Core inflation rose a hotter-than-expected 0.3% while the annual headline rate fell to 2.5%, the lowest since February 2021.

It may be a similar picture in Asia on Thursday, although the market open will probably be strong as investors take the baton from Wall Street. Japanese futures point to the Nikkei opening around 1.5% higher.

The yen on Wednesday surged to its strongest level against the dollar this year after Bank of Japan board member Junko Nakagawa said the central bank would raise rates again if inflation moved in line with policymakers’ forecasts.

That echoed recent remarks from BOJ Governor Kazuo Ueda, so nothing new, and the dollar ultimately clawed back nearly all its losses. But the yen’s spike perhaps indicates how sensitive the market is to the prospect of the US-Japanese interest rate gap narrowing.

The BOJ is only expected to raise rates by 25 basis points by the end of next year. But signals that the BOJ is still prepared to tighten policy amid bursts of global market volatility and as other central banks cut rates are yen-supportive right now.

In that context, Japan’s wholesale price inflation for August will be watched closely on Thursday. The annual rate of inflation is expected to have slowed to 2.8% from 3.0% in July, with the monthly rate evaporating to 0.0% from 0.3%.

The wholesale price index in July hit a record high for the eighth straight month.

The Asian economic calendar’s other main point of focus on Thursday is Indian inflation. Economists polled by Reuters expect consumer price inflation to essentially hold steady at a five-year low of 3.5% in August.

That would mark the second month in a row that annual inflation has held below the Reserve Bank of India’s 4.0% medium-term target, but the weak rupee will ensure policymakers don’t get complacent.

A separate Reuters poll showed inflation averaging 4.2% this quarter, accelerating to 4.5%-4.7% in the coming quarters and back above the central bank’s target. Money markets are only pricing in one quarter-point rate cut from the RBI this year.

Here are key developments that could provide more direction to Asian markets on Thursday:
– Japan wholesale inflation (August)

– India CPI inflation (August)

– India industrial production (July)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)

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